Some Thoughts on the Implementation of an ETF Capability

The rise of ETFs is impossible to ignore! From $1 trillion in assets in 2008 to over $15 trillion in early 2025, ETFs are reshaping modern investment portfolios. 

With their diversification, liquidity, and low costs, they’ve become a must-have for investors. For investment managers, incorporating ETFs into their offerings is becoming a strategic move, complementing traditional mutual funds while introducing new opportunities and challenges. 

Adapting to this shift requires careful adjustments to ensure smooth operations and maintain investor confidence.  

 

Key Operational Considerations for ETFs 

1. Role of Authorised Participants (APs)

ETFs rely on Authorised Participants (APs) to bridge the gap between the Sponsor and the Secondary Market. APs ensure that ETF prices remain aligned with the underlying assets by arbitraging away premiums and discounts. 

Investment Managers must establish robust internal teams to handle the flow of ETF share creation and redemption with APs. This often necessitates front-office expertise and dedicated resources to manage relationships and operations effectively. While existing teams may possess transferable skills, reallocating roles or onboarding new resources might be required to avoid operational bottlenecks. 

2. ETF Administration

Appointing an ETF Administrator is another pivotal step. While current Administrators may handle mutual funds effectively, ETF administration introduces distinct requirements: 

• Portfolio Composition File (PCF) Creation: Administrators must quickly and accurately produce PCFs, potentially multiple times per day, especially during benchmark rebalancing. 

• Corporate Actions Management: Timely and precise handling of corporate actions data is essential to maintain seamless creation/redemption processes. 

• Technology and Data Integration: ETF operations demand advanced interfaces and data flow management, ensuring efficiency and accuracy across human and automated processes. 

Administrators with a dedicated and experienced ETF operations team will stand out as partners capable of supporting high-quality and scalable operations. 

3. Expanding ETF Varieties and Use Cases

ETFs are evolving beyond traditional index-tracking products. Actively managed ETFs, thematic ETFs, and those incorporating ESG (Environmental, Social, and Governance) factors are gaining traction. Investment Managers must assess how these emerging ETF varieties align with their strategies and operational models. 

Additionally, regulatory scrutiny continues to rise as ETFs become more sophisticated. Managers must ensure compliance with jurisdiction-specific regulations and stay ahead of evolving guidelines to maintain credibility and operational integrity. 

 

The ETF Advantage 

ETFs remain an essential component of a diversified investment strategy. Their ability to provide cost-efficient access to global markets, liquidity, and transparency makes them invaluable in today’s financial landscape. With innovations such as semi-transparent ETFs and tokenized ETFs emerging, the potential for growth and diversification within this asset class has never been greater. 

How ISC Can Help 

ISC offers expert guidance to streamline ETF capability setup and optimise existing operating models. Whether you are considering entering the ETF space or enhancing your current offering, our team provides tailored solutions to navigate the complexities of ETF administration, AP management, and operational scalability.